From Guns To Butterfingers

By
Martin C. Spechler, Martin C. Spechler is a professor of economics at Indiana University. /
January 11, 1991

THE end of the cold war has just been proclaimed by 37 European countries, and the Warsaw Treaty Organization is to be transformed from a military alliance into another regional forum. Substantial reductions in Soviet arms production have been put into effect, and more are on the way. Yet the military potential of the USSR remains, and the Soviet consumer still groans under the world's most burdensome military complex. Soviet President Mikhail Gorbachev has done little to change this imbalance. According to Soviet central planners, their defense budget has been reduced about 10 percent and manpower cut about half a million. The military-industrial complex has been ordered to produce new kinds of civilian equipment to increase food yields, fight AIDS, and restore the environment. By 1995, some 60 percent of the output of defense plants should be civilian goods, up from 40 percent last year. Plant visits by American academics and businessmen confirm the enthusiasm of Soviet plant managers to comply, particularly if they can attract Western investment and marketing skills.

Such conversion would be a blessing for the long-suffering Soviet consumer who finds it difficult to buy the simplest household articles. With 60 percent of machine-building capacity and about a quarter of GNP now devoted to war, the potential for diverting materials and engineering talent to peaceful purposes is obvious to all. Moreover, a verifiable reduction of Soviet potential to wage war could reassure NATO countries to do likewise.

Unfortunately, conversion is not yet occurring in the USSR. The Soviet military-industrial planners are defending their privileges. While producing more simple consumer goods and planning more ambitious things, little has been dismantled. Rather, military and aerospace lines are being used less intensively, while diversification to civilian production takes place within the same plant with surplus materials. Few skilled technicians are being laid off, and only six of more than 500 defense plants are to be converted completely. As defense officials admit, slowdowns and mothballing would allow a quick return to weapons production. Though budget allocations have been cut, subsidies and loans allow military plants to stay open.

Cuts in force levels and the loss of forward positions in Eastern Europe do not please the Soviet general staff. To soften the blow, they are demanding housing for officers returning from East Germany, as well as heavy air- and sea-lift capacity to improve mobility. A professional army, it turns out, won't cost less than the present conscript force. Several authoritative voices, including former chief of staff Marshal Akhromeyev, have said that only the Soviet army can guarantee the territorial integrity of the USSR, and move against criminal profiteers or mass demonstrations. Firing on citizens would be distasteful and risky, but Russian units might do so to punish non-Slavic populations. Gorbachev's hard-line allies may force him to abandon his conciliatory foreign policy toward the West as a price for their support at home.

Even if republican governments surrender to Gorbachev's centralist designs, conversion is unlikely to help him soon revive the Soviet economy. With all their technical expertise, Soviet defense plants have not shown themselves capable of producing technologically sophisticated goods for export. The simple consumer goods they have been producing - children's sleds, bicycles, vacuum cleaners - barely satisfy Soviet householders. Military-industrial managers have no notion of modern marketing and cost control, and their elaborate security will certainly hinder cooperation with foreign partners.

With exposure to real market competition, these problems could eventually be overcome. For now, though, the defense ministries are demanding billions of rubles for research, development, and retooling. More plants have been taken into the hierarchical and secret ambit of the Soviet defense complex. This means fewer resources for markets.

A leading Soviet critic of this process told me, ``Conversion is directed against economic reform.'' By siding with the military-industrial complex and centralizing institutions against republican and market forces, Gorbachev is leading his country toward reaction and repression. At present, the Soviet Union has no unified economic system and no real economic policy. Unless Gorbachev turns back to the hard decisions of perestroika and turns resources from the military to food and housing, he may lose all control at home and any support he has won in the West.